Real Estate Principles in California Flashcards

Question 1

Q

Ch2. Real Property- Deed Requirements:

Answer

A

You can’t transfer property unless the deed
IS WILD. (p.17)

IDENTIFIES
SIGNED

WRITING
INTENT
LAND
DELIVERED

Question 2

Q

Ch3. Encumbrances-Mechanic’s Liens: preliminary notice must be given ___ days in advance

Answer

A

notice must be given within 20 days of first furnishing labor, services, equipment, or materials to job site (p 21)

Question 3

Q

Ch3. Encumbrances-Mechanic’s Liens: Filing Period for mechanic’s liens

Answer

A

if owner records a Notice of Completion:
- contractor has 60 days to file a mechanic’s lien
- all others have 30 days (e.g. subcontractors/suppliers)
if no Notice of Completion is recorded, a person has 90 days following completion of a project

Question 4

Q

Ch3. Public Restrictions - Zoning Symbols:
M-1
R-1
R-3

Answer

A

M-1. Light industrial or manufacturing
R-1. Single Family residence
R-3. Multiple Family

Question 5

Q

Ch3. Encroachment:

Time limit that legal action must be instituted?

Answer

A

encroachment on land–within 3 years (of encroachment)
encroachment into air space– no time limit

note: trespasser can eventually acquire an easement by prescription or title by adverse posession

Question 6

Q

Ch3. Title Protections - HOMESTEAD def:

Answer

A

CA law which gives limited protection to homeowner’s equity from forced sale by the court to pay unsecured judgment creditors.

Does not protect against foreclosure or recorded liens.

Homestead may be created by recording a “DECLARATION” or by claiming it during court foreclosure through “AUTOMATIC” exemption as allowed by law

Question 7

Q

Ch3. Title Protections, through HOMESTEAD - Max $ amount of exemption?

Answer

A

a. $175,000 - anyone 65/+ (single/married); anyone physically or mentally disabled, regardless of age; 55/+ with low income and sale is involuntary
b. $100,000 - married person or head of household
c. $75,000 - all other single persons

Question 8

Q

Ch3. Title Protections, Homestead - How is it created?

Answer

A

by recording a DECLARATION or by claiming it during court foreclosure through AUTOMATIC exemption

*note: homestead does not protect against foreclosure or recorded liens (money encumbrances)

Question 9

Q

Ch3. Title Insurance - What is included in the abstract of title?

Answer

A

Title Plants - extensive files of abstracters which classified and summarized histories of real estate transactions
Chain of Title - history of all recorded conveyances and encumbrances. a continuous record of each grantor and grantee
(pg. 28)

Question 10

Q

Ch3. Title Insurance -

What is the standard policy of title insurance?
What does it protect against?

Answer

A

CLTA - CA Land Title Assoc
Protects against:
a. Matters of Record - Documents recorded:
- in county recorder’s office
- in federal land office
- by State of CA in Sacramento
- by any taxing agency
- in county clerk’s office
  b. Forgery
  c. Impersonation or lack of capacity of a party to a transaction
  d. Federal estate taxes; attorney’s fees and other expenses incurred to defend a title

p. 28

Question 11

Q

Ch3. Hazard Insurance -

“Insurance” definition (3 ways)?

Answer

A

Transfer risk of loss from insured to insurance company
Substitution of certainty for uncertainty. By suffering a small loss (payment of premium) insured is protected against uncertain large loss.
Protects cost of replacement in event of loss

Question 12

Q

Ch3. Hazard Insurance - Rates?

Answer

A

Quoted for each $100 of insurance.

If the rate on a 3 year fire insurance policy is $.90 per $100 on a $300,000 property, the premium would be $2700.00

Question 13

Q

Ch3. Escrow -

a. definition?
b. financial code definition?

Answer

A

a. Essentially a small and short-lived trust arrangement in which escrow holder acts as a stakeholders for two parties, usually a buyer and seller

b. “Escrow means any transaction wherein one person, for the purpose of effecting the sale, transfer, encumbering or leasing of real or personal property to another person, delivers any written instrument, money, evidence of title to real or personal property, or other things of value to a third person to be held by such third person until the happening of a specified even or the performance of a prescribed condition, when it is then to be delivered to such third person to a grantee, grantor, promisee, promisor, obligee, obligor, bailee, bailor, or any agent or employee of any of the latter.”
p. 30

Question 14

Q

Ch2. Community Property - Sales (p.12)

Answer

A

Either spouse may SELL community personal property for valuable consideration (except furnishings and clothings) but a gift requires written consent of other spouse.

A sale of real property may be attempted by one spouse but other spouse has 1 YEAR after deed is recorded to void sale.

Question 15

Q

Ch1. Less-than-freehold estate aka nonfreehold estate - LEASE PROVISIONS:

Termination of lease - written notice terms?

Answer

A

period tenancy (month-to-month) require 30 DAYS written notice (landlord/tenant) if tenant resided LESS THAN 1 YEAR

Tenant resided +1 year?

landlord must give 60 DAY notice
tenant must give 30 DAY notice

Question 16

Q

Ch3. Escrow - Closing statements:

Proration - 2 accounting steps (p. 32)

Answer

A

a. establish who is to be charged (debited) and on whose closing statement it will appear:
1. if the item has been paid to a period BEYOND close of escrow - debit the BUYER
2. if the item is unpaid by close of escrow, it is said to be SHORT of escrow - debit the SELLER

b. calculate amount of money involved (prorate):
- use 30 days as one month
- use 360 days as one year (referred to as banker’s year or escrow year)

example on p. 32

Question 17

Q

Ch4. Business Opportunity -

a. Bill of Sale def?
b. Requirements?

Answer

A

a. Document used to transfer title to personal property

b. Requires:
- Description of property
- name of buyer
- signature of seller (no acknowledgment)

Question 18

Q

Ch4. Bulk Sales - Requirements: (p36)

Answer

A

Transferee (purchaser) must give public notice 12 DAYS before transfer. Accomplished w/ a “Notice of Intention to Sell”. This notice must be:

Recorded at county recorder’s office (notice will not show names of creditors)
Published in legal notices’ section of newspaper
Sent to county tax collector

Question 19

Q

Ch4. Business Opportunities - Bulk Sales: Controlled by?

Answer

A

Division 6 of Uniform Commercial Code

Question 20

Q

Ch4. Business Opportunities - Personal Property Loans:

a. Technically referred to as?
b. Controlled by?

Answer

A

a. Security Transaction of Personal Property
b. Division 9 of the Uniform Commercial Code….

note: Personal property loans covers most transactions intended to create a security interest in personal property

Question 21

Q

Ch4. Business Opportunities - CA Sales and Use Tax:

a. Sales Tax
b. Use Tax

Answer

A

Sales Tax - a tax is imposed upon all retailers for the privilege of selling tangible personal property

Use Tax - a tax imposed on the use or consumption of personal property purchased outside the state but to be used within CA

Question 22

Q

Ch4. Business Opportunities - California Sales and Use Tax:

a. Rate of CA Sales and Use Tax?
b. Penalties (amount)?

Answer

A

a. 7.50% of gross sales price

Some counties impose additional tax to support transit district and other projects

b. 10% for late filing by retailer PLUS 25% if delay due to fraud or evasion

Question 23

Q

Ch4. Business Opportunities - Alcoholic Beverage Control Act:

License fees (p.38)

Answer

A

$12,000 fee must accompany an application for an original on-sale or off-sale General (Liquor) license

$4,500 for a seasonal business

Sale price of license cannot exceed $12,000 unless license is older than five years.
Since new licenses are extremely limited and not always available, existing licenses are usually valued far in excess of the $12,000 fee

Question 24

Q

Ch4. Business Opportunities - Financial Statements:

What is a balance sheet, and what do they include?

Answer

A

A statement of the financial position at a given point in time, .. listing assets, liabilities and net worth

Assets: the economic resources of a company or what is owned.
Liabilities: creditor’s claims or what is owed
Net worth: represents owner’s equity or the difference bw assets and liabilities.

Assets (what is owned) - liabilities (what is owed) = net worth

Question 25

Q

Ch4. Business Opportunities - Financial Statements:

What are assets, and what do they include?

Answer

A

Assets: the economic resources of a company or what is owned.

Includes:

a. cash and secuirities
b. account receivable
c. stock in trade - “inventory”
d. real estate and equipment
e. prepaid insurance, rents or taxes
f. goodwill

(note: goodwill - expectation of good patronage… patronage: the regular biz given to a store, restaurant or public service by a person or a group)

Question 26

Q

Ch4. Business Opportunities - Franchise permit exemptions? (p.39)

Answer

A

Before franchises can be offered for sale in CA, permit must be obtained by CA Commissioner of Corporations.

Franchisor is exempt from obtaining permit if:

Franchisor has net worth of $5,000,000 OR has net worth of $1,000,000 and is 80% owned by parent corporation that has $5,000,000 net worth
- AND -
Has had 25 franchises operating continuously for 5 years preceding the offer or sale

Question 27

Q

Ch4. Land Descriptions - pg.40

The 3 methods of legally describing land are?

Answer

A

Metes and bounds;
US Gov’t survey section and township system;
Recorded tract, map, or lot and block system

Question 28

Q

Ch4. Land Descriptions -

CA base and meridian lines? (p.42)

Answer

A

Due to peculiar shape, CA required 3 base and meridian lines:

Humboldt Base and Meridian
Mt. Diablo Base and Meridian
San Bernardino Base and Meridian

base: imaginary East and West line
Principal Meridian: North and South Line

Question 29

Q

Ch4. Land Descriptions - US Gov’t Survey Section and Township Syst:

How many sections are in a township?
How many acres is contained in each section?

Answer

A

p. 44

36 squares …. 36 SECTIONS

(ea section: 1 mile squared; each township holds 36 sections)

640 acres in each section
(640x36= 23,040 acres in each township)

Question 30

Q

Ch4. Land Descriptions - US Gov’t Survey Section and Township Syst:

What is a parcel?

Answer

A

Each section can be divided into smaller parcels (pg. 44)

Question 31

Q

Ch4. Land Descriptions - US Gov’t Survey Section and Township Syst:

Total acres in…..?

a. quarter of a section
b. quarter of a quarter of a section?
c. quarter of a quarter of a quarter of a section?

Answer

A

a. quarter of a section? 160 acres
b. quarter of a quarter of a section? 40 acres
c. quarter of a quarter of a quarter of a section? 10 acres
p. 44

Question 32

Q

Ch4. Land Descriptions - US Gov’t Survey Section and Township Syst:

A standard township?

Answer

A

contains 36 SECTIONS,

is 6 MILES SQUARE

contains 36 SQUARE MILES

Question 33

Q

Ch4. Land Descriptions - US Gov’t Survey Section and Township Syst:

a. Range and Township lines run every ______ miles?
b. Range lines run _______ and Township lines run________?

Answer

A

a. 6 miles
b. Range lines run NORTH AND SOUTH
Township lines run EAST AND WEST

NOTE: 2 numbers assigned to each square (section)

TOWNSHIP NUMBER: first row running along and above BASE LINE
RANGE NUMBER: row or stacks of squares running PARALLE to the MERIDIAN LINE

Question 34

Q

1 acre = _______ square feet?

Answer

A

1 acre = 43,560 square feet

Question 35

Q

Metes?
type of measurements (3)?
old measures that were used, but are seldom today?

Answer

A

metes: measures of length (as opposed to bounds: measures of boundaries, using markers or monuments). pg 40
metes in inches, feets, yards
aka links, chains and rods

Question 36

Q

1 mile= ______ feet

1 mile = ________ rods

Answer

A

1 mile = 5280 feet = 320 rods

Question 37

Q

1 rod = ______ feet

Answer

A

1 rod= 16.5 feet

Question 38

Q

1 acre = __________ SQUARE feet?

Answer

A

1 acre= 43,560 ft^2

Question 39

Q

1 acre^2= ____feet x ______feet

Answer

A

1 acre^2 = 208.71’ x 208.71’ (about 209’x209’)

Question 40

Q

9 sq. ft = ____ sq. yd?

Answer

A

9 sq. ft = 1 sq. yd

Question 41

Q

Ch4. Recorded Tract, map, or lot and block system - Terms used in maps:

a. SETBACK def?
b. SIDE YARD SETBACK def?

Answer

A

SETBACK: distance bw STREET AND FRONT OF BUILDING that must exist to comply with local ordinances

SIDE YARD SETBACK: distance bw PROPERTY LINE AND EDGE OF BUILDING that must exist to comply with local ordinances

(pg. 46)

Question 42

Q

Ch5. Real estate financing in CA requires the use of a _________ together with a _______ OR ________ OR a _________

Answer

A

Ch5. Real estate financing in CA requires the use of a PROMISSORY NOTE together with a 
a. TRUST DEED 
     OR 
b. MORTGAGE 
     OR 
c. a REAL PROPERTY SALES CONTRACT

Question 43

Q

Ch5. Financing - Part I - Promissory Note:

What are the 5 basic types of promissory notes?

Answer

A

STRAIGHT NOTE
PLUS INTEREST
INCLUDING INTEREST
ADJUSTABLE RATE
DEMAND NOTE

p. 49 for definitions

Question 44

Q

Ch5. Financing - Mortgage:

Mortgagee (lender) must file court action to foreclose <– Statute of Limitations?

Answer

A

Foreclosure action is barred (outlawed) if court action is not instituted within FOUR years of delinquency (p.51)

Even where mortgagee holds grant deed to property as security, foreclosure must be by court action

Question 45

Q

Ch5. Financing - Mortgage: Foreclosure Procedure

Who does the Certificate of Sale go to?
How long must you wait before receiving possession of the property?

Answer

A

Who does the Certificate of Sale go to?
- issued to the highest bidder and recorded

How long must you wait before receiving possession of the property?
- must wait up to ONE YEAR

p.51

Question 46

Q

Ch5. Financing - Mortgage: Foreclosure Procedure (Redemption Rights)

Only JUDGMENT DEBTOR is entitled to redeem property (EQUITY OF REDEMPTION) after issuance of Certificate of Sale, and then only within the following time limit:

p.52

Answer

A

Only JUDGMENT DEBTOR is entitled to redeem property (EQUITY OF REDEMPTION) after issuance of Certificate of Sale, and then only within the following time limit:

a. 3 month redemption: if sale proceeds exceeded debt plus interest and court costs, debtor has only 3 months to redeem
b. one year redemption: if sale proceeds do not satisfy debt, interest and court costs, debtor has one year

Question 47

Q

Ch5. Financing - Mortgage:

“Purchase-money” loans defined as?

Answer

A

PURCHASE MONEY (p.52) defined as:

a. mortgage, trust deed or real property sales given to seller as part of purchase price on any type of property, or,
b. mortgage or trust deed given to lender to finance the purchase of owner-occupied dwelling or four or less units.
note: no deficiency judgment will be granted on “purchase-money” loans

Question 48

Q

Ch5. Financing - define:

a. Mortgage
b. Trust Deed

Answer

A

a. Mortgage:
“Borrower uses property as security for loan (hypothecates) but retains full possession and legal title. in the event of default, lenders only recourse is court foreclosure, an expensive and length procedure. Mortgages are seldom used today.”

b. Trust Deed:
“Borrower deeds title to property to third party to be held as security for payment of loan. In event of default, lender can have third party or court sell property to satisfy debt.”

note: main benefit in using the trust deed over the mortgage is ease and speed of foreclosure

Question 49

Q

Ch5. Financing - Mortgage:

When satisfaction of mortgage complete, records of existing debt are cleared by?

Answer

A

Certificate of discharge is issued by MORTGAGEE (lender) and recorded upon final payment and demand by mortgagor (borrower)

Question 50

Q

Ch5. Financing - Trust Deed:

When satisfaction complete (loan is fully paid off), records of existing debt are cleared by?

Answer

A

BENEFICIARY sends “REQUEST FOR RECONVEYANCE” to trustee with original trust deed and note.

Upon payment of fee, trustee issues and records RECONVEYANCE DEED. fee usually paid by trustor

Question 51

Q

Ch5. Financing - Trust Deed: Remedy for default (p.53)

Statue of of limitations/Default Breach?

Answer

A

Trust deeds- Remedy for default: beneficiary may foreclose by trustee’s sale (sale w/o court action) or through court action.

statute of limitations:

no time limit under trustee’s sale
four year limit under court foreclosure

Other source explanation: Beneficiary can choose either a trustee’s sale (most expedient - requires about 4 months) or a foreclosure through the courts. If foreclosed through the courts, the court foreclosure rules apply.

Question 52

Q

Ch5. Financing - Trust Deed:

What happens when “Payment in full/Satisfaction”?

p.53

Answer

A

Note and trust deed are sent to trustee by beneficiary, who signs a “Request for Full Reconveyance.” Trustee signs and issues a reconveyance deed which is recorded to clear the lien from the public records. A reconveyance deed does not convey title to a new buyer. If trustee does not act as soon as practical, he is liable for $300, plus damages.

Question 53

Q

Ch5. Financing - Trust Deed:

Foreclosure by Trustee’s sale process? (p.53)

Answer

A

Beneficiary notifies trustee of default
Trustee records “notice of default” and notifies trustor, subsequent recorded lienors and all others who have requested notice.
Trustee waits at least 3 MONTHS
After 3 months, trustee advertises “notice of trustee’s sale” in public and in a newspaper of general circulation once a week for AT LEAST 20 DAYS (3 weeks) and posts notice on property…. also is recorded at least 14 DAYS before sales date
Trustor can reinstate the loan (pay the back payments and penalties) up until 5 DAYS before the sale.
Trustee conducts sale and issues a trustee’s deed to the highest bidder.

NOTE:Trustor owns and possesses property until the sale and could redeem it or sell it himself.

Question 54

Q

Ch5. Financing - Mortgage:

Deficiency Judgment
A “purchase money” loan

Answer

A

DEFICIENCY JUDGMENT (p.52) 
Under limited circumstances, the lender may get a deficiency judgment against the borrower if the property is sold at the foreclosure sale for less than what is owing on the loan.

A. Application must be made within 3 MONTHS of court sale

B. A deficiency judgment is not possible if sold by a trustees sale (trust deed).

C. A deficiency judgment is not possible if the loan is a purchase-money loan.

D. A deficiency judgment is not possible if the fair market value exceeds the amount that is due on the loan.

E. A deficiency judgment is possible only if the property is foreclosed in a court foreclosure and the loan is not a purchase-money loan.

A purchase-money loan is:
a. A loan where the seller extends credit to the buyer and accepts a trust deed or mortgage on the property as part of the purchase price; or

b. A loan for the purpose of buying 4 or less owner-occupied residential units.

Question 55

Q

Ch5. Financing - Mortgage:

COURT FORECLOSURE process (p.51) if if mortgage breached/defaulted

Answer

A

Mortgagee brings court action.
Court orders property sold.
Commissioner/Sheriff appointed by the court advertises “notice of sale” once a week for 3 weeks and posts notice on property.
(3. not in book, but lesson plan on web)
A certificate of sale is issued at time of sale to the buyer.
Mortgagor has 1 year to redeem property (pay loan in full) (statutory right of redemption) and to remain in possession (liable for reasonable rent).
Commissionor’s Deed of Conveyance (sheriff’s deed) is issued 1 year after the sale.

Question 56

Q

Take home notes on Ch5. Trust deed and mortgage

Answer

A

The trust deed or mortgage is a mere incident of the debt.
The trust deed or mortgage is recorded. The promissory note usually is not.
If there is a conflict between the terms of the note and the trust deed, the terms of the note will control.
The use of an existing promissory note as security for a loan is a pledge agreement.
If a borrower defaults on a first trust deed, the holder of the junior trust deed would likely reinstate the first and enforce his trust deed by a trustee’s sale.
If a lender accepts a deed in lieu of foreclosure, he is obligated for any junior liens.
A purchase-money loan takes priority over any liens against the purchaser which exist at the time of purchase.
Trustees are not controlled by any specific state agency.
The beneficiary’s consent should be obtained for boundary line changes, consolidation agreements and restriction agreements.

http://www.californiarealestatecourses.com/principles/PrinLesson3/les3_17.htm

Question 57

Q

Ch 5. Trust Deed:

Junior Trust deed or mortgage definition

Answer

A

Any lien that is not a first trust deed or mortgage. Referred to as “secondary financing” (p55)

priority established by time of recording
interest rates are usually higher than the first
(the risk of junior lienholder is higher)
basic protection for the lender is the borrower’s (buyer’s) equity
the beneficiary of a junior loan should record a request for “notice of default” so that he’ll be notified if borrower defaults on prior loan

Question 58

Q

Ch5. Trust Deed: CA Usury Law- limits interest on some loans.

Lenders and Loans exempt from the law?

Answer

A

law does not limit the interest rate on any (p.56):

loan or forebearance of money made by a bank, savings, and loan or credit union
real estate loan, either made directly by a broker or one arranged by a broker when acting as a mortgage loan broker

forebearance: temp postponement of mortgage payments; a form of repayment relief granted by lender/creditor in lieu of forcing foreclosure

Question 59

Q

Ch5. Trust Deed: CA Usury Law- limits interest on some loans.

Loans Covered - interest rate is limited as follows:

Answer

A

Loans Covered - interest rate is limited as follows: p.56

10% on loans where funds are to be used primarily for personal, family or household purposes (loans for the purchase, construction or improvements of real property are not included)
all other loans made by nonexempt lenders are limited to the higher of 10%, or 5% plus current discount rate charged by Federal Reserve Bank of San Francisco

Question 60

Q

Ch5. Trust Deed: CA Usury Law-

Where is the CA Usury laws found in the State Constitution?

Answer

A

Basic CA Usury laws found in article 15, section 1 of the State Constitution

Question 61

Q

Ch5. Real Property Sales Contract

a. What is it?
b. aka?

Answer

A

a. Real Property Sales Contract (p.56): method of financing a purchase where seller retains title to the property but agrees to convey title to buyer when buyer has paid off the contract price

b. aka:
- Installment Sales Contract
- Agreement to Convey
- Agreement for Purchase and Sale
- Land Sale Contract
- Land Contract of Sale

Question 62

Q

Ch5. Real Property Sales Contract:

CONVEYANCE - vendor’s rights and obligations?

Answer

A

(p. 57) Vendor may convey legal title to the property to a third party.

a. vendor (seller) must also assign contract of sale
b. grantee must notify vendee (buyer) of conveyance in order to collect payments
c. grantee bound to delivery title to vendee when contract is paid in full

Question 63

Q

Ch5. Real Property Sales Contract:

“Judgement” definition (p.57)

Answer

A

A money judgement is a lien on the legal title and on the vendor’s interest in the payments due.
Vendee’s interest is not affected if judgment is subsequent to purchase agreement.

judgment lien: A court ruling that gives a creditor the right to take possession of a debtor’s real property if the debtor fails to fulfill his or her contractual obligations.

Question 64

Q

Ch5. Real Property Sales Contract:

Disadvantages to vendor (p.58)

Answer

A

Disadvantages to vendor (p.58)

a. vendee may subject title to mechanic’s lien or other lien
b. if contract is recorded and vendee moves out, vendor may have a difficult time clearing the title
c. if vendee defaults and refuses to move, vendor is faced with expensive court eviction proceedings (have to file unlawful detainer to have vendee ousted)

Answer 65

A

Disadvantages to vendee (p.58)

a. Contract may restrict/prevent transferring vendees interest ..without paying off land contract or obtaining consent of vendor.
b. Land contracts are considered poor collateral for loans by most financial institutions.
c. After full performance vendee may receive defective title or not receive title at all
d. vendee has no assurance vendor has good title at time contract is made
e. Vendor could be incompetent, bankrupt or die before title is conveyed, forcing vendee to pay for expensive litigation to obtain good title.
d. Vendee has no redemption rights in event of default and declaration of forfeiture The vendee would be liable if the improvements were damaged.

Answer 66

A

Alternatives to Short Sales:

loan modification
foreclosure
a deed in lieu of foreclosure
bankruptcy

Answer 67

A

1- What is the ACT that changed the regulation of the mortgage industry and financial markets?
Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (p.61)

2- Changes were made: due to the many foreclosures that resulted from loose underwriting standards and the effects of the recession

3- Act resulted in: stricter underwriting standards for mortgage loans and greater control over the mortgage industry

Answer 68

A

I. INSTITUTIONAL LENDERS: lenders who provide the principal source of funds for conventional and government-backed real estate loans.
- Lenders include: insurance companies, credit unions, commercial banks, mutual savings banks, and savings and loan associations

II. NON-INSTITUTIONAL LENDERS: lenders who also provide funds for mortgage lending. Includes: Mortgage Companies, Pension Funds, Endowed Universities, Trust Department of banks and Private Individuals.

See characteristics of each type of lender starting p.61

Answer 69

A

The federally chartered credit unions are supervised by NATIONAL CREDIT UNION ADMINISTRATION (NCUA).

The state chartered credit unions are supervised by DIVISION OF CREDIT UNIONS in the DEPARTMENT OF FINANCIAL INSTITUTIONS.

Answer 70

A

Savings accounts in both state chartered and federal credit unions are insured by the NATIONAL CREDIT UNION SHARE INSURANCE FUND.

Answer 71

A

Banks, credit unions and Savings and Loan Associations (p.63)

most banking operations in the US for both federally- and state-chartered banks are controlled by FEDERAL RESERVE SYSTEM

Answer 72

A

How does the “Fed” (Federal Reserve System) regulate the flow of money? p.63

a. Minimum cash reserve requirements:
- member banks must keep certain percentage of each deposit received as a reserve. to tighten available loan funds, “Fed” INCREASES min. reserves

b. Adjusting discount rate: since “fed” is source of loan funds for ea bank, member bank may have to borrow money or sell existing loans to meet min reserves. “Fed” can:
- INCREASE discount rate/interest rate to discourage borrowing during “tight money” market/inflationary period
- REDUCE rates to stimulate loans to member banks who in turn make cheaper loans available to their customers

c. Buying or Selling Existing Bonds: money held by “Fed” is invested in various types of securities, principally bonds
- by SELLING bonds f/ their portfolio at sizable discounts, investors will take cash from bank savings accounts and purchase bonds. this REDUCES bank’s cash reserves
- by BUYING bonds from the public at a premium, investors will sell bonds and place money back into bank savings accounts

Answer 73

A

- FDIC acronym for?
  FEDERAL DEPOSIT INSURANCE CORPORATION
- What does it do?
  provides insurance to depositors in…:
  a. state and federal banks under “Bank Insurance Fund”
  b. in saving and loans under “Savings Association Fund”
- Insured for?
  each account insured for $100,000
- Who pays for the insurances?
  - financial institution pays for the insurance

pg.64

Answer 74

A

the “Fed”: controls most banking operations in the US for both federally- and state- chartered banks. Purpose:

SECONDARY MONEY MARKET: operates as the banker’s bank. member banks may borrow from the “fed”, and buy existing loans from it or sell loans to it
REGULATES FLOW OF MONEY: “Fed’s” PRIMARY purpose today.
- details on p.63

Answer 75

A

Fees allowed to be paid to:

attorney for services actually performed
an agent of a title insurance company
an agent of a lender
a cooperating RE broker that is splitting a commission

(pg. 66)
note: prohibits paying a “finder’s fee” by a RE agent

Answer 76

A

Penalties: anyone found guilty of violating the law for “kickbacks” is subject to: (p.66)

a. a fine of not more than $100,000, or,
b. imprisonment for not more than a year, or
c. both fine and prison

Answer 77

A

CREDITOR - defined as:

person who extends consumer credit of any time, more than 25 times a year
person who extends consumer credit that is secured by a dwelling, more than 5 times a year

Answer 78

A

exact form not set in law, but regulation Z lists 18 DISCLOSURES that are required on closed-end credit transactions, such as mortgage loans

5 most important items in disclosure statements?

amount financed
finance charge
annual percentage rate
total of payments
in credit sales, total sale price

pg.68

Answer 79

A

finance charge:
total cost in dollars of the financing cost including interest, points, loan fees, credit report fees, mortgage insurance, etc.
annual percentage rate (APR)
total cost of credit expressed as a percentage. on variable rate loans, further disclosures must be made relating to reasons for increases, limits and effects

Answer 80

A

“Attorney-in-fact” is anyone holding a duly executed power of attorney from the owner. These appointments should be recorded for RE transactions and person should sign: “XYZ, by Tammy Kim, his attorney-in-fact”.

General powers given to attorney-in-fact; can do all acts on behalf of owner EXCEPT:

a. Convey homesteaded property
b. mortgage property to themselves
c. sell to themselves even if adequate consideration given

Answer 81

A

Who are the real estate commissioner?
- Chief Executive of the Bureau
- Chairman of the Real Estate Advisory Commission
Who are they appointed by?
- appointed by the Governor

Answer 82

A

Duties of RE Commissioner:

investigates complaints against licensees
- district attorney prosecutes law violation in
  his/her own county
Regulate the sale of subdivisions
Screen and qualify applicants
Hold formal hearings within terms of Administrative Procedure Act (legal procedures used to discipline licensees).
a. Serves accusation and statement of issues to licenses affected
b. accusation must be filed within 3 YEARS of most acts. if act involved fraud, misrepresentation or a false promise, can be filed within ONE YEAR after discovery or within THREE YEARS of act, but not more than 10 YEARS from date of act.
Make rules and regulations which become part of the CA Administrative Code. Commisioner’s Regulations have “force and effect” of law.
Enforces provisions of Real Estate Law- State Attorney General is the legal adviser.

Answer 83

A

What is the Administrative Procedure Act?
- legal procedures used to discipline licensees. RE commissioner holds formal hearings with the terms of the Administrative Procedure Act
- RE commissioner serves accusation and statement of issues to licenseee affected
Accusation filing time periods?
- Accusation must be filed within THREE YEARS of most acts.
- if act involved fraud, misrepresentation or a false promise, can be filed within ONE YEAR after discovery or within THREE YEARS of act
- but not more than TEN YEARS from date of act

(p.79)

Answer 84

A

Real Estate Advisory Commission consists of COMMISSIONER and 10 OTHER MEMBERS who are appointed by commissioner.

6 members must be RE licensed brokers
4 are public members (non-licensed).

Everyone besides Commissioner serves without any compensation, other than expenses.

note: all records of the Commission are open to inspection by the public during regular business hours.

Purpose of the RE Advisory Commission?
Advisory makes recommendations to Commission on matters involving department of real estate

Answer 85

A

INDIVIDUAL BROKER’S LICENSE: authorizes broker to conduct brokerage business for his or her own personal account

Requirements:

office must be maintained by broker (residence is ok)
broker’s and salesperson’s licenses must be available on inspection
need not display sign on premise

Answer 86

A

CORPORATION LICENSE: requires ONE officer to be duly licensed as a broker

salespersons may be officers, providing supervising broker is officer and director of corporation

Answer 87

A

type of licenses that the Bureau of Real Estate can issue (p.79):

Individual Broker’s License
Corporation License
Partnerships
Salesperson License
Branch Office
Fictitious Business Name
Restricted, suspended, revoked or cancelled license
Mineral, Oil, and Gas Broker’s License
Prepaid Rental Listing Service

Answer 88

A

What is the requirement of a “PARTNERSHIP”?

License may be issued in lawfully registered fictitious business name of partnership. at least one party must be licensed broker.

partnership may consist of 2 brokers, broker + salesperson, or broker + non-licensee
all activity must be conducted through BROKER-licensed partner

Answer 89

A

SALESPERSON LICENSE: issued to individual employed by broker. must be under control and supervision of broker.

salesperson cannot act as an independent agent
all legal actions must be filed through broker
must have written agreement with broker
license must be on file at broker’s main office
licensed broker can work as a salesperson BUT must have written agreement with employing broker agreeing not to operate independently on his or her own license

Answer 90

A

BRANCH OFFICE: license required for each additional location when broker operates +1 office

Answer 91

A

Which persons (legal or natural) can operate under a fictitious name?
- licensed broker, corporation or partnership
Synonym for fictitious name?
- DBA: “doing business as”
Who must it be approved by?
- Commissioner must approve fictitious name

Answer 92

A

Commissioner may refuse fictitious name if name:

is misleading or would constitute false advertising
implies a partnership or corporation when one does not exist
includes the name of a salesperson
is in violation of the law
is a name which has been used by a person whose license has been suspended or revoked

Answer 93

A

RESTRICTED LICENSE: probationary license, often issued in lieu of suspension or revocation (cancellation) after hearing by Commissioner.

License may be restricted:

by term
to employment by a particular broker, if a salesperson
by conditions to be observed in the exercise of the privileges granted

Answer 94

A

SUSPENDED LICENSE: temporary loss of license

restricted license may be suspended immediately w/o hearing
o.g. salesperson license is automatically suspended if licensee has not completed 2 req’d real estate courses w/in 18 mo. of issuance.

Licensee may pay penalty in lieu of suspension of up to $250 per day not to exceed $10,000

Answer 95

A

REVOKED LICENSE:
loss of license for UNLIMITED period of time.

License cannot be revoked w/o a hearing

Answer 96

A

CANCELLED LICENSE:

Status of salesperson’s license if that person quits, is fired by Broker, or if Broker dies.
Not cancelled in a true sense as license continues to run for FOUR YEAR TERM.
Licensee cannot work without a broker

Answer 97

A

MINERAL, OIL, AND GAS BROKERAGE LICENSE

the BRE no longer issues any new MOG licenses

The LICENSE LAW now permits a licensed RE broker/salesperson to engage in MOG transactions w/o any special license or permit
a broker who holds a MOG broker’s license may continue to renew his or her license, but no new licenses are issued

Answer 98

A

PREPAID RENTAL LISTING SERVICE: special license which allows LICENSEE to collect a fee for supplying a prospective tenant with a list of available rentals
Restrictions on this type of license?
- does not permit licensee to negotiate leases or do any other type of RE activity
- ea location must have this special license except a RE broker may provide this service w/o a special license if done at his/her regular RE brokerage office by a RE licensee
- ea location must be bonded for $10,000

Answer 99

A

Transfer of Salesperson’s License can only be transfered to a broker co. or individual broker.

Following are required:

former broker notifies Sacremento immediately* and surrenders license to salesperson
new broker notifies Sacremento IN WRITING *immediately
Salesperson amends license to show new employer and gives to new employer for filing at main office

Time frame for notifications of transfer?
B&P Code #10161.8 states “immediately” but Commissioner’s Regulation #2752 allows new broker 5 days for notification and former broker 10 days

Answer 100

A

Commissioner can suspend/revoke a licensee if RE professionals do not adhere to an ethical framework. If they are guilty of doing the following items stated in SECTION 10176 and SECTION 10177 of Business and Professional Code.

p.83 for details of all acts under each code (REVIEW!!)

Answer 101

A

Person acting as a broker or salesperson without a license subject to fine up to $20,000; corporation $60,000.

pg.84

Answer 102

A

RECOVERY ACCOUNT funds: underwrites the payment of uncollectible court judgments against licensees (cover claims of aggrieved parties who have suffered monetary damage through the actions of a RE licensee).
Limited to following amounts:

$50,000 for ea claimant but not to exceed $50,000 for all claimants in any one transaction
$250,000 for multiple transactions of any one licensee
pg. 84

Answer 103

A

NAR - Nat’l Association of Realtors
- national organization. members are called “realtor”
CAR - CA Association of Realtors
NAREB - National Association of RE Brokers
- members caled “realtist”
- predom black RE brokers; org formed in 1947 during period of discriminatory practices
IREM - Institute of RE Management
- members called CPM “Certified Property Managers”, for property managers
AIREA - American Institute of RE Appraisers
- MAI, “member appraisal institute”

pg. 86

Answer 104

A

Trust funds should be deposited or placed into:

a neutral depository
in the hands of principals
or, into a trust fund account

within 3 BUSINESS DAYS following their receipt

pg. 88, under commingling

Answer 105

A

Broker cannot hold funds collected on notes or sales contracts for more than 25 DAYS unless given written authorization to do so.

pg. 88

Answer 106

A

If broker negotiates new loan, trust deed must be recorded before loan funds are disbursed. If lender authorizes early release, a written recommendation to record must be given to lender within 10 DAYS of release.

pg.88

Answer 107

A

Max commissions to brokers on HARD MONEY loans (pg. 89)

First Trust Deeds (under $30,000..max)
- less than 3 years - 5%
- 3/3+ years - 10%
Junior Trust Deeds (under 20,000..max)
- less than 2 years - 5%
- 2 years, but less than 3 - 10%
- 3/3+ years - 15%

Answer 108

A

Broker must keep expenses w/in reason (expenses my be fees for appraisal, escrow, title insurance, notary, etc).  
Total expenses (excluding title charges and recording fees) cannot exceed:

a. Loans of $7,800 or less - actual expenses but not more than…..
- $390.00

b. Loans bw $7,800 and $14,000 - actual expenses but not more than…..
- 5% of loan amount

c. Loans over $14,000 - actual expenses but not more than…..
- $700.00

pg. 89

Answer 109

A

Balloon Payments - Any payment greater than twice the smallest installment. (e.g., The total unpaid debt is due.)

investopedia def: oversized payment due at the end of a mortgage, commercial loan or other amortized loan. Because the entire loan amount is not amortized over the life of the loan, the remaining balance is due as a final repayment to the lender. The average homeowner could not make a balloon payment at the end of a mortgage, even if substantial principal payments were made over the life of the loan. Because of this, most homeowners and borrowers plan in advance to either refinance a mortgage near the balloon-payment date, or simply sell the home before the maturity date.

b. What are they not allowed on?
- Not allowed on hard money installment loans of 6 years or less on owner-occupied dwellings.
- Not allowed on hard money installment loans of less than 3 years.

pg. 90

Answer 110

A

Exclusive Loan Listing taken by a broker to negotiate a loan covered by this law is limited to a term of not more than 45 DAYS

pg.90

Answer 111

A

Servicing agent must have trust account inspected at least every 3 months if during 3 consecutive months:

a. Amounts exceeds $125,000 or
b. Number of payees exceed 120

pg.91

Answer 112

A

Valid contracts must have:

capable parties
mutual consent
a Lawful object
sufficient consideration

pg.94 for details on each

Answer 113

A

All terms and conditions of offer must be clearly ascertainable.
- 3 requirements of all contracts?

all financing terms should be spelled out
land must be accurately described
must not be “illusory”

illusory: does not really bind the offeror even if offer is accepted (too many contingencies written into the contract that give offeror an easy out). a promise that doesnt pledge anything, bc its too vague or offeror can choose whether or not to honor it

Answer 114

A

Types of unenforceable contracts?

a. promissory note charging Usurious interest
b. contracts of unlicensed “brokers”
c. gambling debts

note: usury - illegal practice of lending money at unreasonably high rates of interest
pg. 95

Answer 115

A

a. STATUTE OF LIMITATIONS - Bars any court action (for breach of contract) seeking relief, if not taken within specified time limits.

b. any action on RE activities must bring legal action within time limits specified:
- within 2 years: any oral contract, or on a policy of title insurance
- within 3 years: encroachment or attachment
- within 4 years: any written contract (except promissory note)
- within 5 years: an action to recover real property (adverse possession, prescription, tax sale, escheat
- within 6 years: breach of contract based on failure to perform under a promissory note
- within 10 years: judgment lien

pg. 97 for details on each

Answer 116

A

Ratification (formal acceptance of an agent): principal may become bound by ratifying acts of an agent who acted beyond his authority, or acts of a person who acted as an agent without any authority.

Requires:

profession by agent to act as principal’s rep
principal to have been capable of authorizing the act
principal to have knowledge of a material fact(s)
principal to ratify entire act of agent
principal to ratify before third party withdraws
written ratification if dealing in real estate

Answer 117

A

Agency can be created by AGREEMENT, RATIFICATION, or ESTOPPEL.

Answer 118

A

Agent’s duties toward principal:

cannot use confidential relationship to his/her own benefit. no secret profits.
must disclose all material facts to principal
must use reasonable care and skill
must obey directions of principal
must render an account on demand (accounting)
may not act for 2 principals in negotiations with each other w/o knowledge and consent of both

pg.100

Answer 119

A

Tax year, or fiscal year is? JULY 1 through JUNE 30
Taxes become a lien on JANUARY 1 preceding each fiscal year
First installment:
- due NOVEMBER 1, delinquent after DECEMBER 10
Second installment:
- due FEBRUARY 1, delinquent after APRIL 10

pg117

Answer 120

A

When qualifying borrower, usually require monthly gross income (not including overtime) to be 4 - 5 TIMES monthly payment (PITI)

PITI: principal, interest, taxes and insurance

pg. 69

Answer 121

A

Lending Practices - Qualifying the borrower:

Property is usually sole security for the loan so lender will appraise and grant a loan on a percentage of the appraisal.

pg.69

Answer 122

A

Impounds: reserves set aside and held by lender to pay the property taxes and fire insurance.

amount of impound: 1 month’s worth of annual taxes and property insurance premium

pg.70

Answer 123

A

FHA - Federal Housing Administration
US Dept of Verteran’s Affairs
CA Farm and Home Purchase Program

pg 72 for details

Answer 124

A

FHA SFR loan limits

for high-cost areas, the max loan limits are:
$729,750  for one unit
$934,200  for two units
$1,129,250  for three units
$1,403,400  for four units

pg.73

Answer 125

A

FHA SFR loan limits

for low-cost areas, the max loan limits are:
$271,050 for one unit
$347,000 for two units
$419,400  for three units
$521,250 for four units

pg.73

Answer 126

A

3.5% of appraised value,
subject to change

p.74

Answer 127

A

Fire insurance premium and property taxes, usually paid by impounds

(impounds details p.70)

Answer 128

A

DVA (dept of veterans affairs) guarantees lender against loss on foreclosure.
Guarantees:
1. loans to $45,000 –> 50%
2. $45,000-$144,000 –> min $22,500 w/ max to 40% of loan N/# $36,000
3. $144,000+ —> 25% up to $50,750

pg75

Answer 129

A

MAX LOAN:

home, condo, or mobilehome and lot: $521,250
mobilehome in rented space: $175,000
farm: $750,000

pg. 75

Answer 130

A

documentary transfer tax: tax adopted by most CA counties which is levied (imposed) at the time a deed is recorded.
the rate is $0.55 for each $500 of consideration or part thereof. (note: consideration is usually selling price)
no tax if consideration is $100 or less
pg. 118

Answer 131

A

ordinary income taxed at rates of 10-35%:

10% on income of $7k or less - 35% on income over $311,950

pg119

Answer 132

A

max tax rate is 15%

capital gains: profits realized from sale of Capital Assets or Section 1231 Assets (essentially a profit f/ sale of prop or of an investment)

pg119

Answer 133

A

a CONDOMINIUM is an “an estate in real property consisting of an undivided interest in common in a portion of a parcel of real property together with a separate interest in space in a residential, industrial or commercial building on such real property, and may include in addition, a separate interest in other portions of such property”.

Answer 134

A

6 1/3%

.067

1/15

Answer 135

A

12 1/2 %

.125

1/8

Answer 136

A

16 2/3 %

.1667

1/6

Answer 137

A

1 acre = 43,560 square feet

Answer 138

A

1 square yard = 9 square feet

Answer 139

A

square acre = about 209’ x 209’

Answer 140

A

lot dimensions: eg. 50’ x 100’
1st dimension is WIDTH
2nd dimension is DEPTH

Answer 141

A

residential
commercial
industrial
agricultural
special purposes

pg.162

Answer 142

A

theroy is that in typical lot, 
first 1/4 of depth carries 40% of value
next 1/4 - 30%
next 1/4 - 20%
last 1/4 - 10%

deeper than normal lots are increased by 9% for extra quarter

pg164

Answer 143

A

Board foot: a unit of measurement of lumber

1 foot wide x 1 foot long x 1 inch thick = 144 cubic inches

pg182

Answer 144

A

BTU: British Thermal Unit

the quantity of heat required to raise the temperature of 1 pound of water, one degree Fahrenheit

pg182

Answer 145

A

ceiling height: approximately 98” from floor to ceiling

Answer 146

A

crawl space: area r space bw the ground and floor joists used as access to plumbing and electrical connections beneath the house

crawl space: FHA min space is 18"
min opening (crawl hole) is 18" x 18"

pg182

Answer 147

A

cubic yd = measures volume

1 cubic yd = 27 cubic ft

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